Servicing Guide

Published September 9, 2020

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C-2.3-01: Processing ARM Conversions to Fixed Rate Mortgage Loans (05/15/2019)

This topic provides requirements for processing ARM loan conversions to fixed rate mortgage loans.

The servicer must also follow the procedures in F-1-01, Servicing ARM Loans in order to complete the conversion of an ARM loan to a fixed rate mortgage loan.

This topic contains the following:


Determining Eligibility Criteria for Converting a First Lien ARM to a Fixed Rate Mortgage Loan

To be eligible for conversion to a fixed rate mortgage loan, the servicer must confirm that an ARM loan

  • is current (or must be brought current by the conversion date),

  • has an LTV ratio of 95% or less, and

  • satisfies any other conditions specified under a negotiated contract.

If the mortgage loan has negatively amortized, the servicer must obtain a new appraisal to determine

  • the current LTV of the property, and

  • whether the borrower will have to pay any funds to reduce the UPB to the amount required to achieve an LTV ratio equal to 95% of the current value of the property.


Completing the Conversion

The following table provides a list of all items required before the servicer can complete the conversion of an ARM to a fixed rate mortgage loan.

The servicer must have...

Received any required appraisal report.

Received from the borrower

  • any amount required to reduce the UPB, if applicable;

  • any other items as specified in a negotiated contract; and

  • a signed agreement acknowledging the changes to the mortgage note necessary to provide for the new fixed interest rate.

Sent a document custodian the original agreement, if Fannie Mae is holding the original note as a custody document.

Performed any other actions as specified in the negotiated contract.

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